Why retirees are doing their lump sums

Finance Minister Bill English confirmed  last week that the government was pushing on with a plan to allow pension portability between New Zealand and Australia.

"Although details are still to be discussed, this stands to be an important step forward. It would allow New Zealanders and Australians to consolidate their financial affairs in the country in which they live," English said in a statement.

The plan, which was first floated last year, will allow New Zealanders to import whatever superannuation savings they have accumulated in Australia across to a KiwiSaver account only.

According to some estimates plucked out of the ether, New Zealanders might have upwards of $5 billion unwittingly stored away in so-called 'lost super' accounts in Australia. There will also be plenty more super savings stashed away in Australian accounts which returned New Zealanders haven't lost track of.

As I argued previously  there are several reasons why you might want to leave your super in Australia.

Transferring to a KiwiSaver account will also lock in the money until you are age 65, whereas in Australia retirees can access their super from age 55, depending on when they were born (don't ask, it's complicated).

If they want, Australian retirees can also choose to drawdown part of their superannuation each year, with some tax benefits for doing so, rather than a lump-sum payment. And with now being the worst time to retire ever, accepting a lump-sum which has been degraded 20-30 per cent over the last couple of years might not be the best option.

However, it is the only option open to some New Zealanders who have saved through their own workplace savings schemes. I was chatting to a friend who described that very scenario being played with one of his co-workers, who was being forced to crystalise massive losses in his pension because he was retiring, which meant selling down the entire depressed super account.

"He's a bit disappointed," my friend told me. His former workmate is currently in the process of downsizing retirement dreams - less golf, more canned food.

A more flexible approach to the pension drawdown might have prevented him from writing down 30 per cent of his private retirement savings immediately - and some schemes do offer flexibility.

But as Auckland academic, Susan St John, wrote in her 2006 paper 'The Policy Implications of Decumulation in Retirement in New Zealand':

"There are few, if any, suitable New Zealand annuity products to meet the risk of

outliving additional capital. While private pensions can be helpful, fewer companies are offering these... and fewer again of these pensions provide protection from the erosion of inflation."

KiwiSaver will be no help here - it has been designed as a lump sum scheme with no thought to managing post-retirement cashflow.

 

 

David Chaplin

 

 

Less golf and more canned food: photo/ Otago Daily Times